Unpacking the possible engineered stone ban and its shake-up on construction contracts

Most of the Australian standard form construction contracts make provision for contractors to comply with ‘legislative requirements’ which are typically broadly defined to include, for example:

1. acts, Ordinances, regulations, by-laws, orders, awards and proclamations of the jurisdiction where WUC or the particular part thereof is being carried out;
2. certificates, licences, consents, permits, approvals and requirements of organisations having jurisdiction in connection with the carrying out of WUC; and
3. fees and charges payable in connection with the foregoing (Fn: AS 4902 standard form contract, definition of ‘legislative requirement’).

While this can place a heavy burden on contractors, there has been a tendency for contractors to utilise this clause when any ‘change’ occurs because of a legislative requirement that came into effect after the contract date and could not have reasonably been anticipated by a competent contractor. Most larger construction contracts allow cost relief where a contractor is impacted this way.

Some more recent examples where this type of claim has been successfully deployed include the COVID pandemic (to the extent contracts during that time did not have specific clauses dealing with this), and the resumption/acquisition of land by governments to accommodate the increasing number of infrastructure projects being developed in capital cities.

Given the recent reports concerning the health impacts of working with engineered stone, it seems inevitable that states and/or the federal government will legislate to either ban or significantly alter their use.

Engineered stone

Following a concerning number of cases of silicosis (an irreversible lung condition) being associated with engineered stone within Australia, Safe Work Australia delivered their Decision Regulation Impact Statement on the ‘Prohibition on the use of engineered stone’ in August of this year. It has since been found that, engineered stone ‘often has significantly higher crystalline silica content, resulting in the generation of more dust containing RCS when processed, compared to natural stone’[1], which can directly lead to the development of silicosis. Safe Work Australia also made note that there has been insufficient compliance with work health and safety legislation across the country when dealing with the stone – which is of concern.

The report has called for a complete ban on the use of the substance, which has recently seen high end retailers such as Ikea and Bunnings pulling the product from their stores, as well as SafeWork ACT and the workplace safety regulator in the ACT beginning a ‘crackdown’ on the use of engineered stone within the territory. It is anticipated that the other states and territories will soon follow suit with the likelihood that Australia may be the first country in the world to ban or limit the use of engineered stone in building sites.

Many participants in the construction industry have relied on the use of engineered stone due to it being a cost-effective option, as the stone can be processed more efficiently than natural stone, resulting in more refined final products. Notwithstanding this, the health impacts to workers who use engineered stone can no longer be ignored and it remains to be seen whether state and/or federal governments will move to create more safeguards around their use or whether the product will be banned outright. Unions have already demonstrated their dissatisfaction on various current building projects directing their delegates to stop using the product altogether.

What are the ramifications to a building project that specifies engineered stone (e.g in kitchen benchtops where it is most commonly found) if the bans come into effect?

Relief for a ‘change in legislative requirement’

During the life cycle of a construction contract, principals may have to deal with claims which fall under the ‘change in legislative requirement’ clause within their contracts. This clause, which is contained in many Australian standard form contracts, allows a contractor to claim additional costs on the project when having to address a change in legislative requirement which directly affects the work. Although reasonable in principle, these clauses have tended, recently, to find favour with contractors because a) the definition of legislative requirement is very broad and b) there is usually no notice requirement or time bar for contractors seeking relief under this clause. To be entitled to relief, the contractor will typically have to demonstrate:

1. some act or decision which falls within the definition of legislative requirement;
2. it must necessitate a change to the project requirements or the works or result in a new fee or charge;
3. it must come into effect after the contract (or after the 14^th day before the closing of tenders);
4. it could not reasonably then have been anticipated by a competent contractor; and
5. which resulted in an increase in cost than what would have otherwise been incurred.

Steps 1-4 may be easier to establish than step 5 in some situations. For example, a delay at a port in China due to a government regulation concerning a COVID shutdown may be difficult to link to the actual extra costs to a project in Sydney. Strategic evidence would be required to prove the claim.

If the state or federal government introduced a law banning engineered stone or mandating specific requirements for its use (eg must have 40% or less silica), then this would appear to fall squarely within a change in legislative requirement scenario depending on when the contract was signed.

Current projects are likely to be at risk of contractor claims if they need to procure different materials at a higher cost due to any ban on change in specification requirements for engineered stone.

How can contracts be safeguarded to protect against incoming changes in legislative requirements?

For contracts yet to be executed it is arguable that a competent contractor could or should have been aware of any potential ban on the use of engineered stone (failing step 4 above). Nevertheless, principals/developers may seek to expressly exclude engineered stone in the specifications or allocate the risk of its use entirely to the contractor and potentially include an indemnity for any claims resulting from the use of this product.

For contracts already on foot that specify engineered stone, principals should be aware of the potential for contractors to raise a change in legislative requirement claim if the contractor is subsequently banned from procuring the material or is required to procure stone with less silica content. To mitigate this risk, discussions should be had between the parties, preferably prior to when the engineered stone is procured for use at the site, as to the options for alternative materials. While a variation may be required, the cost may be minimal or at least much less than if the contractor pursues a change in legislative requirement claim. Balanced against this however is the chance that (depending on the stage of progress in the contract), the engineered stone may be procured and installed prior to any government bans and therefore prior to when a claim could be established. That is a big risk though, and would be better mitigated if possible, especially when there are longer lead times for engineered stone during which, at any time, government action may be taken.

Next steps

The health impacts and other risks identified in the use of engineered stone seem to be the tip of a very large iceberg. It would not be surprising if large scale litigation comparable to the James Hardie litigation commences in the foreseeable future. All roads are leading to either a complete ban of engineered stone or severe modification in its use. Such decisions or actions if implemented in the current lifecycle of a construction contract will inevitably lead to claims by contractors for relief based on the very broad change in legislative requirements clauses in most Australian standard form contracts.

See our recent article here that outlines recent updates to the NSW work health and safety legislation regarding silica and asbestos provisions: The only way is up: What you need to know about increased penalties and other changes to NSW WHS laws | Gadens.

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Authored By:

Matthew Taylor, Partner
Ryan James, Lawyer

[1] Decision RIS – Prohibition on the use of engineered stone – 27 October 2023 (safeworkaustralia.gov.au)